Our forecast and research team spends the bulk of its time studying price activity as it relates to commodities in general, industrial metals in particular and the underlying price behavior of each metal.
Why should GOES Be Any Different?
Simply put, grain-oriented electrical steel (GOES) does not behave like the rest of the base metals, or steel products for that matter, because it operates under quite a different set of market conditions. Some of those conditions appear obvious and others less so.
The Regulatory Atmosphere
Besides looking more like an oligopoly vs. an open market with ample opportunity for price discovery, GOES markets have seen dramatic changes as a result of energy efficiency standards and regulations. These regulatory changes have single-handedly altered the GOES pricing landscape.
DuPont has an excellent information page on the regulatory changes enacted since 2007 and continuing through 2016 impacting this market. Suffice it to say, the 2016 regulations add additional energy efficiency requirements for 3-phase low-voltage, general-purpose (LVGP) and medium-voltage (MV) transformers. These regulations come on top of energy efficiency requirements for LVGP transformers and MV transformers.
The Bottom Line
To meet these new energy requirements, manufacturers needed to upgrade the materials used to make this type of equipment. Beginning in 2007, one could argue that the commoditization of the standard grades of GOES began as the materials leading to more core loss (and thus, poorer energy efficiency) entered a declining market as electrical power equipment manufacturers started sourcing more technically demanding grades. This bifurcation of the GOES market has now become much more extreme.
According to a recent TEX report, the European market landscape has changed dramatically. The report estimates Europe as a 300,000-metric-ton market for 2016. However, the market mix has shifted from approximately two-thirds of the market buying the commodity grade material and a third of the market buying the more value-added material, to nearly two-thirds now consuming high-grade materials (coming from producers in Japan and Korea) vs. one third of the demand purchasing the more traditional commodity grades.
MetalMiner has conducted a similar market sizing analysis here in the United States with demand pegged at 250,000/mt per year. MetalMiner has not sized the commodity grade market from the value-added grades, but one can assume a similar shift is also occurring.
What This Means For Prices
As domestic manufacturers enter into negotiations for contract orders commencing in January 2016, one might expect to see two different price trends – rising prices for the value-added grades (due to tight supply and strong demand) and continued pressure on the commodity grades. However, market participants have confirmed that domestic mills have sought higher prices for both non-oriented electrical steel and GOES, though foreign producers’ prices for the commodity grades have declined.
In addition, the Korean and Japanese producers have little to no material available, particularly in high-grade GOES. Buying organizations caught short on material would do well to identify Chinese sources of supply.
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